The stock market sell-off in the U.S. had already led two firms to downgrade their outlook on U.S. equities. Now, a third has emerged. Citigroup lowered its rating on U.S. stocks to neutral from overweight, citing a "pause in U.S. exceptionalism." "The news flow from the U.S. economy is likely to undershoot the [rest of the world] in coming months, and at least tactically, U.S. exceptionalism is therefore unlikely to roar back," strategist Dirk Willer wrote to clients. Citi said it remained bullish long term: "We are not convinced that U.S. exceptionalism, when seen during the equity lens, is over. We think that it is only over structurally, when the AI story has peaked. We doubt that this is already happening." The Wall Street firm's change of heart comes in the middle of a steep market nosedive. The Dow Jones Industrial Average dropped more than 900 points on Monday, while the Nasdaq Composite plummeted 4%, its biggest one-day loss since 2022. The S & P 500 closed down 2.7%. Those declines put the Nasdaq in a correction, down more than 10% from a record set in December. The S & P 500, meanwhile, closed below its 200-day moving average for the first time since October 2023. The losses were led by major technology names, including Nvidia and Tesla . The latter plunged 15% on Monday, its biggest one-day pullback since 2020. "In [the] bigger picture, AI-driven outperformance of the U.S. [is] not done yet, but that is for the long term, not for the next few months," Willer added. Citi's downgrade put it alongside HSBC and BCA Research, which also recently lowered their view of U.S. equities: HSBC: "We started the year overweight emerging market equities on the assumption that tariff threats would drive bolder and bigger fiscal stimulus from China," strategist Alastair Pinder said in a note. "What we underestimated was how the U.S.'s wavering support for NATO and Ukraine would trigger a watershed moment for the eurozone — with Germany expected to also follow through with sizeable fiscal stimulus." BCA Research: "We think that the uncertainty engendered by DOGE and tariffs will provide the nudge to tip [the U.S.] into a recession and are tactically downgrading equities to underweight and upgrading fixed income and cash to overweight," wrote strategists led by Doug Peta. Where should investors put their money instead? Citi upgraded Chinese equities to overweight, citing strength in the country's tech sector. "DeepSeek proved that China tech is at the Western technological frontier (or beyond), despite the export controls," Willer said. HSBC raised its rating on European stocks, which have been on a tear to start the year. The Stoxx 600 index is up more than 7% in 2025, while the S & P 500 has lost 4.5%. BCA advised clients move to safer assets, upgrading fixed income and cash to overweight. Elsewhere Tuesday morning on Wall Street, Morgan Stanley analyst Adam Jonas reiterated his overweight rating on Tesla, telling clients to buy the dip in the electric vehicle maker. "We see the pullback as a buying opportunity for an embodied [artificial intelligence] compounder," wrote Jonas, a noted Tesla bull .
